Quickbooks tax holding account on balance sheet 10/20/25

I understand that the new Tax Holding Account may raise some questions, Sue. I'm here to help clarify everything for you.

The Tax Holding Account is designed as a temporary holding place for funds that have been deducted from your bank account but haven't yet reached the tax agency. When you run payroll, the Tax Payment System immediately debits the amount from your bank account. However, the funds will not be sent to the tax agencies until they are actually due, so they sit in this account temporarily.

You won’t need to take any action on your end. Once the payments are forwarded to the tax agency, the balance will automatically be removed from this account, which will also reduce your payroll tax liability.

Also, I will share a link that will help you prepare your tax forms in QuickBooks: Pay and file payroll taxes and forms electronically in payroll. This link also includes related resources, such as printing forms and running payroll reports in QuickBooks.

If you have any additional concerns about handling payroll in QuickBooks, please feel free to reply below. I'm here to help.

This is wrong.  This is not GAAP.  You are leading novice users down the wrong path.  As an accountant who presents financials to third parties, how does anyone explain to a bank this giant non-existent asset?  Well, Mr. Banker, this Intuit programmer who operates in isolation in a basement decided he knew better than the rest of the entire accounting world?  Intuit needs to roll this back immediately!   

Please delete the message from me that was posted 39 minutes ago.  It is messed up for some reason and cuts off halfway and then repeats itself.  Here is a correct version:

I don’t know if this will be helpful, but I surely hope the time and frustration it cost me can help others. 

After some 5 hours of time with QBO support and another 6 hours reviewing my account and several of my clients’ accounts, I want to share what I have learned about how the new QuickBooks Payroll Tax Holding Account works.  Please note that this was originally written for a client whose CPA is telling them that they should show zero in payroll liabilities because QBO is taking the money from their bank accounts before it is due.  Not a bad argument, but one she and I have not control over, so …. Here is the explanation for her of what is happening as I understand it.

IN SHORT

QuickBooks now moves payroll tax money from the client checking account into a temporary “holding” account first, instead of paying the tax agencies right away.  (I will not discuss my concerns about there being an asset account on my balance sheet that I cannot reconcile but can only believe exists…at least not here.)  

That holding account is recorded inside QuickBooks as an asset account named QuickBooks Tax Holding Account.  So, your  balance sheet will continue to show the liability balance on your balance sheet but will also now have the offsetting asset Quickbooks Tax Holding Account.  

When a payroll occurs, the paycheck creation process will increase the liabilities accounts, and then the TAX WITHDRAWAL from your bank account (equal to the amounts withheld or accrued from the current/just completed payroll) will increase the Quickbooks Tax Holding Account by the same amount.  That will happen each pay period.

When those tax payments are paid on or just before the due date from the Quickbooks Tax Holding Account, decreasing that asset account, it offsets to the payroll liabilities, also  decreasing each liability account.

IN DETAIL --What happens step-by-step:

When you run payroll,

1. the payroll liabilities are accrued in the appropriate liability accounts, increasing what you show as owed to the taxing agencies;
2. funds to cover the taxes are withdrawn by Intuit QB Payroll from your  bank account for all amounts withheld from employees and those accrued by you as the employer, regardless of the due date;
3. that withdrawal from your bank account is recorded in the asset account called “QuickBooks Tax Holding Account” inside QuickBooks, increasing that asset by the same amount as the payroll process increased the payroll liabilities accounts.

When taxes are due,

1. QuickBooks pays the tax liabilities with the funds they are holding in the QuickBooks Tax Holding Account
2. QuickBooks records the tax payment in the payroll tax liability accounts and the QuickBooks Tax Holding Account, decreasing both the asset and liabilities accounts.

How I reviewed the setup of the QuickBooks Tax Holding Account:

1. Go to Reports
2. Open Balance Sheet
3. Look for QuickBooks Tax Holding Account under Assets
4. Look for payroll tax accounts under liabilities.
5. These balances should offset one another.  There may be some small difference due to a rounding issue which will eventually clear out or need to be offset with a journal entry.  If they do NOT offset, there is likely an error in a prior period which will need to be reviewed. See step 4 in the next listing of steps, just below this one.
6. To review the very first journal entry used to setup the QuickBooks Tax Holding Account is a bit more challenging than the usual process of simply double clicking the transaction.  You must
   1. Customize the date to the date of the  first journal entry in the Quickbooks Tax Holding account; all of my clients were October 2025 dates.
   2. Click Customize button
   3. Filter the  transaction type to Payroll Adjustment
   4. Look specifically at the one with HOLDING ACCOUNT SETUP in the memo and the offsetting credits:
   5. Write down the DATE of that transaction and the amounts of each liability account (or take a screenshot)
   6. Go to Reports and choose the JOURNAL report.
   7. To confirm the amounts, go to Reports and choose the Balance Sheet

1. then your liability accounts are likely incorrect due to prior period transactions being booked to the wrong account as Quickbooks created the payroll adjustment based on payroll withholding and accruals for the unpaid period. 
2. For many clients, we have found this is related to tax penalty payments or refunds incorrectly booked to liabilities during dates before the HOLDING ACCOUNT SETUP journal entry that began the Quickbooks Tax Holding account
3. To correct it, a review will need to be completed of the prior periods.  We have found an easier way is do that is to pull a report of the liability account and sort by transaction type and review specifically any item that is NOT a payroll check or payroll adjustment or tax payment or tax adjustment
4. Create a journal entry to offset any incorrect transactions so that the payroll liabilities are correct.

1. Customize the date to the same date of the payroll adjustment with HOLDING ACCOUNT SETUP in the memo
2. Locate the payroll tax liabilities section
3. If those amounts match, then the amounts are accurate.
4. If they do not match,

How you can/should review ongoing activity in the QuickBooks Tax Holding Account and payroll liabilities accounts

1. Go to Reports.
2. Open Balance Sheet showing the dates of the period you want to review.
3. Confirm that the QuickBooks Tax Holding Account offset (matches) the payroll liabilities accounts total
4. If the payroll liabilities accounts total doesn’t offset the QuickBooks Tax Holding Account and is not within pennies, you will need to research it in the same way as in #4 above

NOTES FOR REVIEWS:  The TAX PAYMENT transactions cannot be double clicked and opened to view details FOR SOME UNACCEPTABLE REASON that support cannot explain to me, but you can search the amount in the search bar to the right of your company name and you should be able to open the tax payment listed in the results.  Keep in mind that even this won’t work for the journal entry that set up the QuickBooks Tax Holding Account.  Your only hope there is to pull the JOURNAL report for that particular date and filter to PAYROLL ADJUSTMENTS.

If you open the Quickbooks Tax Holding account for 1/1/2026 through 2/23/2026, for example, you should see that the amounts showing as Tax Payment with the name of the agencies match the amounts accruing in the payroll liabilities accounts and that they occur on or just before the DUE DATE. 

The Tax Payment showing QuickBooks Payroll is the TAX WITHDRAWAL, the amount withdrawn from your bank account and deposited into the Quickbooks Tax Holding Account to wait to be paid on the due date.  That withdrawal is the exact amount of withholdings plus employer accrued liabilities for the current (just completed) payroll regardless of the tax due date. 

It is Not ethical to be collecting our money to sit in an account gaining interest for you  to pay future taxes. It would make more sense to collect taxes right before due and pay them . It is not acceptable to hold our money for months before payment . Many companies are small and cannot afford this because of budgeting . I agree with above comment . And what will happen when you do not pay our taxes because someone has misappropriated funds ??? It has happened so don’t think it’s impossible !  We will still owe the taxes to the IRS! This is a nightmare !